25 Apr 2011: Opinion

Energy Déjà Vu: Obama Must Break with Failed U.S. Policies

Despite soaring rhetoric and some promising proposals, President Obama is repeating the same mistakes that have doomed U.S. energy policy to failure for 40 years. Until Obama and Congress finally put a true price on the fossil fuels America consumes, the U.S. will continue its addiction to foreign oil and domestic coal.

by michael graetz

The weekend following President Obama’s energy policy speech on March 30 and the White House’s simultaneous release of its “Blueprint for a Secure Energy Future,” many newspapers ran a cartoon by Jeff Stahler depicting the eight presidents from Richard Nixon to Barack Obama, each supplying one word of the refrain: “We must reduce our dependency on Mideast oil.” Nearly a year earlier, after President Obama delivered his first Oval Office address to the nation setting forth his energy policy goals following the BP oil spill in the Gulf of Mexico, Jon Stewart of The Daily Showplayed clips from the same eight presidents — all promising to end our dependence on oil, all offering other energy alternatives, and all setting deadlines for reaching their goals.

The problem, of course, is that 40 years of energy policy failures are not funny.

Until the 1970s, we produced domestically all the oil we needed. But since then we have had to import most of the oil we use, much of it from the Middle East. And we rely on an even dirtier fuel — coal — to produce half our electricity.

Four decades after energy policy first took center stage in our nation’s political discourse, the fundamental difficulties that brought energy onto the policy forefront remain unresolved. The United States has 4 percent of the world’s population, but consumes 25 percent of the world’s oil. In 1970, we imported less than half a billion barrels of oil; by 1980, our imports had increased to nearly 2 billion. Now we import about 3.5 billion barrels annually. Much comes from Canada and Mexico, but we still depend on OPEC oil to keep our vehicles moving. We import 13 million barrels of oil every day, 5 million from OPEC countries.

Even our most effective domestic energy policies have failed us, in large part because we have failed to put a true price on the fossil fuels we consume. In 1973 about 17 percent of our nation’s electricity was generated from oil; now just over 1 percent is. The good news is that producing electric power is now essentially a domestic enterprise. The bad news is that electricity accounts for about 40 percent of U.S. carbon dioxide emissions, and given the risks from climate change and other pollutants, our heavy reliance on dirty coal-fired electricity is now just another problem to solve.

Presidents have all sought a technological “silver bullet” to solve our problems. Richard Nixon, for example, was certain the nuclear “breeder reactor” was the best path forward on energy; Jimmy Carter placed his bets on fueling U.S. cars with “synfuels” made from coal. Both cost billions, and both came to naught.

Congress has elevated narrow regional interests over national goals, routinely providing large subsidies and tax breaks to favored constituents and contributors. The heavily subsidized ethanol industry has no doubt

been the most costly of these pork-barrel programs. But the most scandalous involved “black liquor,” a concoction made from wood pulp, which increased, rather than reduced, petroleum use, while bestowing about $8 billion of government largesse on the paper industry from 2007 to 2009. And in 2008, congressional “earmarks” for specific institutions, projects, or locations took up one half of the total R&D budget for biomass, one third for wind, and more than one quarter for hydrogen projects — an absurd way to develop new energy technologies.

Sherlock Holmes famously instructed us to be alert to a dog that fails to bark. In his March speech, President Obama seemed ready to deploy all of the levers of government to cure us, at last, of what all eight presidents, including him, have called our “addiction to oil.” He promised to open federally controlled property to more oil drilling and to expand production of domestic natural gas. He said he would use the federal government’s spending power to purchase only hybrid, electric, and alternative fuel cars and trucks and to substitute biofuels for petroleum in military jets. The president also promised government “incentives” for a litany of oil-saving items and activities, including automobile batteries, electric fueling stations, high-speed rail and mass transit, energy-efficient building materials, and biofuels. And he promised to tighten regulatory requirements governing automobile fuel efficiency, to extend such regulations to large trucks, and to adopt new federal requirements for the ways in which the nation’s electricity will be produced. Along the way — notwithstanding the troubles in Japan — he again embraced nuclear power, and he even gave a thumbs-up to that chimera, “clean coal.” The president would regulate, bribe, purchase, and cajole to transform how we produce and use energy in this country.

In his kennel of proposals, however, one dog failed to bark, the same dog that never barks. In the thousands of pages of energy legislation and regulations enacted since energy policy came to the fore in the 1970s, Congress has never demanded that Americans pay a price that reflects the true price of the energy they consume. For nearly a decade following the oil embargo of 1973, Congress refused even to allow the price of gas at the pump to reflect the worldwide market price of oil. No one now contemplates requiring gasoline prices to include, for example, the costs of

Reflecting the true costs of energy would require taxing energy consumption rather than subsidizing production.

keeping oil moving safely from the Persian Gulf into our gas tanks, or insisting that our electricity prices reflect the costs of coal pollution or of nuclear power safety.

The problem, of course, is that reflecting these kinds of costs in the price of energy would require taxing energy consumption, rather than subsidizing its production. As our massive government debt reminds us, it is far easier for our government to spend than to tax. Past efforts to tax energy consumption are not encouraging. Recall the failed efforts of Jimmy Carter to tax gasoline or Bill Clinton’s BTU energy tax defeat. So no one should be surprised that President Obama did not suggest that we should tax what we want to reduce — petroleum use and electricity consumption from fossil fuels — and use the revenues to reduce taxes on things we want to increase, such as jobs and wages.

The president has consistently said that his energy plan would require “tough” (but unspecified) choices. But — no doubt looking ahead to his re-election campaign — he failed to ask the American people to do anything tough. Despite all his bold talk of policy initiatives, the president failed to say how he planned to pay for his new spending incentives. He didn’t even ask Americans to drive less or more slowly, to turn down their thermostats, or to turn off the lights when they leave a room.

Unfortunately, experience calls into question the efficacy of his plans. Many of the “incentives” he promised, if not most, will take the shape of tax breaks, despite nearly half a century of compelling evidence — from ethanol, wind power, hybrid vehicles, and energy-saving home improvements, to name just a few — that they are wasteful and inadequate to the task.

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And “command and control” regulations, where federal or state regulators tell producers and manufacturers exactly what level of emissions or energy efficiency will be allowed, have also been overly expensive and frequently ineffective. For example, our system of automobile fuel efficiency standards (CAFE) is unnecessarily costly and much less effective than need be. Either a cap and trade regime or a gas tax would eliminate more gasoline consumption at a fraction of CAFE’s costs. But, given last year’s failure of climate change legislation, President Obama also declined to say anything about the well-known cost savings advantages of cap-and-trade regulatory regimes.

Since he first began running for the presidency, Barack Obama has given many speeches describing our nation’s pressing need to transform how we produce and consume energy. This president knows well that, despite all the laws Congress has enacted since 1973, our policies have always been inadequate. In 2010, however, when climate legislation died in Congress, Obama learned first-hand the potent political barriers to effective action. Now the president hopes that the turmoil in the Middle East and the nuclear power troubles in Japan will galvanize the nation into action. The fear, however, is that knowing our past failures will not keep us from repeating them.

COMMENTS

Typical liberal spouting. What we NEED is lower gas prices so that we don't go broke as American consumers. I don't know about you, but I CAN'T consume less fuel. Right now, I consume 70 gallons of gas a month (on average). I do not drive anywhere I do not need to. Period. Higher prices only punish me, the consumer.

Posted by
Russ
on 25 Apr 2011

As compared to the earlier comment, I wouldn't say that Michael Graetz' comments were typically liberal or conservative, but I would say that he is correct on most of his points.

Obama and all the past presidents have been completely dishonest in their statements and positions on energy independence. Obama, because of the strong alternative energy policy speech that he presented in August 2008 while still running for the presidency, may be the worst offender and most duplicitous in allowing the U.S. to remain addicted to an oil industry that is controlled by enemies of our country.

My one correction to Michael Graetz' comments is in regard to the point about getting much of our imported oil from Canada. In a sense he's correct, but most of the oil that comes from Canada actually comes from countries, some of which are countries that we are supposed to not be buying oil from. Reshipping through Canada is the way they circumvent the laws.

My one disagreement with Mr. Graetz is in his opposition to ethanol subsidies. As long as the very rich oil/gasoline industry continues to enjoy huge subsidies from our Federal and State governments the ethanol subsidy is about the only measure in effect that begins to level a very, very un-level playing field. If we remove ethanol subsidies then we have to remove all oil/gasoline subsidies and then make the oil/gasoline industry reimburse us for the cost of having our military defend and protect that industry. I think that Michael Graetz might agree with this position.

A quick reminder to everyone: the government isn't a company. They are not "producing" anything. Any revenue is generated from taxes that are paid by the American public. So the cost of “protecting” the shipping lanes and our oil interests overseas is an inherent cost within the price of oil and gasoline. However, the cost to do so has been born by Americans because of the behavior of politicians by not allowing us to tap our own assets at home. This is witnessed by Shell’s decision to end a $4 billion investment in Alaska.

What drives me nuts is that the same environmentalists that we saying “no” to the US using its own resources, has no problem having failed states like Nigeria destroy their own environments to that we can still have access to oil. The main problem with US energy policy is that we are not taking advantage of our own natural resources to bridge the gap until a new energy source can be developed that has the same efficiency as oil and transportability.

Until that day comes, we are obligated to use our own natural resources to provide our citizenry with reliable and cost-effective energy sources. Oil, from a transportation standpoint, is our only option for the time being. As for natural gas, it needs to be the source for electricity production. Period.

Posted by
KJD
on 25 Apr 2011

@Russ and KJD,

Sorry, but mother nature and the laws of supply and demand frankly don't care that you use 70 gallons, or 700 gallons a month. Oil is a finite material, and it is getting more expensive to extract. All the easy oil has been pumped.

Google Chesapeake Energy (a U.S. energy company) and read about how the Chinese are buying stock in the company. Read about how we are building shipping terminals in the Northwest to transport coal to Asia.

Learn about how most of the land that is already approved for oil drilling in the U.S. is idle as it is too costly to extract. Learn about how we could double our oil output in the U.S. and it would have only a modest effect about oil prices, and much of it could find its way to another country if that other country was willing to pay more than U.S. consumers. Learn about how Canada exports oil to the U.S., and pays more for gasoline than we do.

I fully anticipate that our country's desire for short term easy solutions will lead to our drilling anywhere and everywhere. When the 'magical' new technology fails to materialize to replace oil, we'll be left with no reserves and a collapsed society. At that point you won't need 70 gallons a month because you will have no job to commute to.

Posted by
John Dyer
on 26 Apr 2011

"We have met the enemy, and he is us."

Posted by
WesleyL
on 27 Apr 2011

Graetz, I think you are spot on about everything, except for cap and trade which is unecessary. fwiw, I as a conservative, am almost ready for a gas tax; the stumbling block for me is how the revenues would be spent. I don't want them diverted to support healthcare, entitlement increases or to the typical liberal welfare handout programs. I want them all to go towards federal budget deficit reduction first and secondly to technology R&D. Obama needs to make the first move by proving he is willing to cut more spending than he has already stated. Then the public would (hopefully) open up towards the possibility of a new tax. Regards.

Posted by
Toms
on 27 Apr 2011

If we took away the tax breaks from the oil companies AND billed them for our military protecting the shipping of fuel, the price increase would go straight to the gas pump. At the same time, lower our income taxes so that we aren't paying the same tax twice. We would see a mass exodus from unnecessary heavy vehicles, such as most SUVs and the demand for fuel efficient transportation options would control most Americans auto purchases. Hybrids and battery electrics would become quite popular with people who could make use of them.

Big Oil has more money than most countries and spends HUGE amounts on lobbyists, so what we the people want is irrelevant. Our "representatives" are well taken care of to make sure nothing touches oil profits.

Posted by
Mark C
on 27 Apr 2011

It is an interesting article.

http://www.flickr.com/photos/kombizz/4342127856/

Posted by
kombizz
on 28 Apr 2011

Mr. Graetz' article is interesting. Canada, New Zealand and other countries already highly tax gasoline to support much of their government spending especially on social programs. So it is being done elsewhere and the prospect of using the tax income to reduce debt feels good at least. However, I wish Graetz or someone else would consider what a significant increase in gasoline taxes would do to the economy of the U.S., the ability of U.S. industry to compete on the world market, the impact on jobs here and the likely increased cost of food especially for lower income folks who are already strapped. Has anyone seen such an analysis?

Posted by
Jim Okraszewski
on 28 Apr 2011

Higher gas prices is not the problem. Europeans have been living with $8 to $10 prices for the gallon of gas. But they drive smaller cars and more important, smaller engines. A Mercedes E class in Europe typically houses a 2 liter engine, whereby in the US you cannot get the same model with a smaller engine than 3.5 liter.

Another point is the price for electricity. Europeans pay three times as much for the KWh. This results in a higher appreciation for energy in general. That results in behavior like turning lights off after you leave a room.

You can drive through the poorest areas of a US city at night and the houses are light up like a billboard. In Europe, when you drive through the richest areas at night, houses are dark where they are not in use.

Bottom line: We need to change our appreciation for energy and that behavior change needs to be directed from the top. The president needs to be more vocal about our own responsibilities.

Its the false sense of entitlement that the majority in the US has in regards to energy. Thats why we are the #1 consumer of it in the world.

Posted by
Martin Schuermann
on 28 Apr 2011

If it was up to just the president he would have changed the policy. It takes all of congress to agree. Thta is the real problem.

Despite that Pres Obama has done more than any president by simply leaving gas prices high. Trying to stop the subsidies and trying to make OIL companies accountable.

We all must pray for the truth to be told and renewable energy to bring light to the world, before it's too late.

Posted by
jimmy carter
on 28 Apr 2011

We cannot subsidize our way out of our energy problems. Subsidizing one apparently desirable alternative in order to help it compete with another already-heavily-subsidized alternative (like petroleum or coal) is not a good idea.

We need to start paying for the diplomatic, financial, national security, health, and environmental ills that are caused from our use of energy in the price of energy. On the surface, this appears to be very bad for the economy, however all of the impacts from the ill mentioned above will eventually have to be paid one way or the other. The costs of our country's trade imbalance, wars to secure energy supply, healthcare for smog-induce problems, and environmental disasters must eventually be paid anyway. If these costs were actually paid in the price of the fuel who's consumption causes the problem, efforts would be made to use them more efficiently and to seek alternatives with the lowest total cost impact. Conservation would actually lead to reduction of real cost impacts, but avoiding paying these costs upfront will not.

Posted by
Mark Wagner
on 30 Apr 2011

We should remove the tax breaks given to Oil Companies. And Yes, they would pass the increase onto us. However, then only the people who use gasoline would pay for the extra cost. And if you don't like paying the higher prices then use a more efficient vehicle!

Posted by
Matt
on 30 Apr 2011

An excellent analysis of 40 years of failed energy policy. In fairness to the president, he did propose cap-and-trade which was thwarted by Republicans and the coal industry. I think a simple, revenue-neutral carbon tax is the way to go, with 100% of the proceeds to be rebated to the public in the form of lower payroll taxes. We should direct subsidies for existing green technologies that have been around a while (like wind and ethanol) to R&D into newer ideas.

Posted by
Marc Gunther
on 30 Apr 2011

It has been explicit US policy over the past century to make "fossil fuel," and then uranium fission, seem cheap "in the market." This was most likely done to encourage a certain type of industrial development for rapid economic growth, although atomic power is a very special case.

We also might consider that since the US is the largest world military by far, the federal government heavily subsidizes uranium and hydrocarbon materials and their associated uses and machinery since without them there would be no US military. Now we seem to have oil and nuclear for the military and militarism for oil (and privatized profit) and more calls for atomic fission, especially from politicians (not to mention nuclear PR efforts).

Therefore, it appears the poisonous and poisoning materials of uranium and fossil hydrocarbons are not "resources of energy" but mined matter. Their true value for a nation-state is for fuels of war, that is, as explosives and their delivery systems. Civilian energy in the US seems to be an expansion of an "energy system" via centrally planned finance and economics built on explosive materials, rather than sustainable energy policy planning. One might even call it a war economy.

If this were so, the US could never "get off oil" since the tremendous liability of our global military, beyond present fiscal concerns, would be exposed. Thus, our present cascade of unfolding calamity and impoverishment.

Posted by
James Newberry
on 01 May 2011

People who wonder what we should do about climate change and the high price of gasoline must read economist Steven Stoft's plan for reducing atmospheric carbon in his book Carbonomics: How to Fix the Climate and Charge it to OPEC. Although it is three years old and seems to have been ignored by policy-makers--despite high praise from people who should know and James Hansen's earlier recommendation --it makes far more sense than cap-and-trade. Perhaps it was rejected as potentially politically unpopular, but it appears to be much more advantageous to the consumer than cap-and-trade, much simpler to set up and run, and potentially freer from the influence of lobbyists and special interests. Stoft's ideas cry out to be implemented. They are every bit as fresh and important as when he wrote them.

Stoft's premise is that the only action that significantly reduced the world's use of carbon fuels and simultaneously lowered the price of fuel was the Arab oil embargo (the high price made people use less gas, which drove down the price). His conclusion is that the best way now to reduce carbon energy use, while keeping revenue here rather than sending it to OPEC, is to institute a carbon tax that would be periodically redistributed to all Americans equally --an "untax." That would encourage buyers to use less gasoline and keep the profits, but would let anyone unconcerned with cost buy as much gasoline as he or she wanted. Everyone would receive an equal amount back, but only by using less carbon would you end up with a profit. British Columbia has been using a similar plan for three years plan with some success, but to be fully effective it would require international cooperation. Stoft believes that is essential and has a plan for it too. Conservatives should like the idea because it uses market forces rather than regulations or subsidies.

Stoft's plan should have a better chance of being accepted here and internationally than cap-and-trade. It's simpler, does not require complex bargaining or caps, and is harder to cheat at. The international plan has a few differences and added features. It allows nations to use any means of taxing carbon that they want to, but would set a level that, if exceeded, would necessitate payments to countries that used less than the assigned carbon level. One might suppose companies and countries that sell carbon-based fuel would oppose it, but our Senate also killed cap-and-trade after the House watered it down so much it would have had little effect anyway.

Evidence is accumulating that climate change will probably be far more dangerous and require stronger measures than Stoft's plan proposes. But since too many of our representatives are owned and paid by carbon-based fuel moguls and are working to undo what little we have achieved, Stoft's plan will at least give us a fighting chance of moving forward instead of backward. And the fact that it will work long-term to mitigate global warming while offering the short-term benefit of returning money to the public instead of shipping it abroad is a strong point in its favor. Regrettably, by making oil from oil wells the primary focus of the plan, much dirtier energy sources are downplayed: coal, shale oil, oil sands, and, now we discover, shale gas. And once the proposed pipeline is constructed to send oil sands to the US from Canada, it will be hard to shut it down. But I don't see anyone offering a better plan, and this appears workable.

There's more about the book on http://stoft.com/p/carbonomics.html, where you can order the book with author's discount (it's only ten bucks at Amazon anyway)--or you can download it and read it for free by clicking the "read the answer on Google" button (but then you can't underline the important stuff). Pp. 262-69 sum up the basic rules for his plan.
I know the politics of the moment make any attempt to do something effective about climate change an uphill struggle, but with this plan I believe we have a real shot. After reading it, I don't understand why we're still talking about cap-and-trade.

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